This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Delivered on:

16 November 2010

I don’t think it will come as a major surprise to anyone here that the UK has been through a massive economic shock, and that it now faces a major challenge in achieving growth.

The metaphor I have often drawn is that the British economy, two years ago, suffered the economic equivalent of a heart attack with the near collapse of the banking system. Death was averted by speedy intervention to shore up the banking system to prevent an economic slump. The patient is now being nursed out of intensive care and off steroids, which have included a temporarily necessary but unsustainable budget deficit. But serious damage has been done and we are only now at the stage of planning rehabilitation.

The ramifications are being felt by all parts of the British economy and the Comprehensive Spending Review was part of the Coalition Government’s efforts to move away from crisis management to creating a platform for sustained growth.

I am here today to give you some further context against which our actions in the Further Education sector should be judged. I will then outline our skills strategy and touch on where we go from here. I’d like to thank my colleague John Hayes, the Minister of State for Further Education, Skills and Lifelong Learning, who has championed this agenda and who is conducting the consultation with the sector. He will outline further details for you tomorrow.

Firstly, let me be clear. Education and skills are key elements of long-term growth. A skilled workforce contributes to economic growth through increased productivity and greater employability. It also drives greater social mobility. These skills have an important role to play in helping to close the productivity gap with the overseas competitors, which now include India, China and Brazil which have reservoirs of highly motivated and increasingly well trained manpower.

FE colleges play a crucial role in helping us to achieve this aim, teaching valuable skills to three million people every year. I know Richmond Tertiary College and Richmond Adult and Community College in my own constituency very well and they are exemplary models. And, as I have travelled across the country, I have found the work of colleges often quite inspirational, though rarely given the prominence it deserves.

To be frank, there is an unhealthy degree of snobbery which has led to an exclusive focus on the academic qualifications of universities - which are of variable quality - at the expense of often outstanding vocational work in the FE sector. John Hayes and I are absolutely determined to end those prejudices.

Evidence shows that vocational qualifications are a cost-effective way of raising productivity and contributing towards economic growth. But training is about more than that. It is about helping people enter work. From the perspective of the individual, higher skilled people are more likely to be employed, and are likely to earn more and to fulfil their potential.

A lot of training takes place because it is in the self-interest of employers and individuals and it is right that they should make a private contribution. But the market by itself will not provide adequate training. This leaves a demand and need for government intervention, and we need to think carefully about where this can best be made. We are not in a position to throw money at the problem.

We believe Government investment should be targeted towards areas where it will have the maximum impact, leading to training which would not otherwise have happened. The Skills Strategy and Skills Investment Strategy have been designed to maximise the impact of this investment. It will do this by targeting funding towards individuals aged from 19 up to 24 where evidence suggests that the UK falls behind many of its competitors; and particularly those at lower levels of skills for whom market failures and barriers to learning are most acute.

A 2006 Review of the UK’s long term skills needs asserted that unless the UK could build on reforms to schools, colleges and universities and make its skills base one of its strengths, UK businesses would find it increasingly difficult to compete. Despite warm words and targets in the four years since, the underlying situation has not been fully addressed. This is what the Skills Strategy sets out to address. This strategy sets out a vision for a reform of the skills system based on three key principles: fairness, sharing responsibility and increasing freedom.

In relation to the fairness agenda, skills play an important role in promoting social inclusion and social mobility. The FE sector is central to that set of objectives. The Government will ensure, therefore, that funding for skills training is refocused on those who need it most. In particular, a basic entitlement for those basic skills of literacy and numeracy needed to access employment and participate in society; refocused on the unemployed who are actively seeking work; and on young people as they make the transition from education to work.

In terms of sharing responsibility, the Government cannot tackle the skills challenge on its own. Employers and citizens must take greater responsibility for ensuring their own skills needs are met. But they will only do this if they are able to access good information and are able to influence the system to provide the training they need. So as well as asking companies and individuals to pay more for their training when they benefit financially, we will improve both the information about skills that is available and make it easier to access through establishing a new all-age careers service and offering every adult undertaking learning a Lifelong Learning Account.

Careers guidance is crucial. The current system in England is fragmented and fails to integrate advice on learning with careers advice. The new service will address this by joining together advice on learning, skills, careers, jobs and pay prospects. We will also introduce new FE loans to help learners aged 24 and above to obtain finance for intermediate and higher-level skills training.

And finally, we want to free up the sector from bureaucratic control and centrally determined targets and radically simplify funding, so it can respond to the needs of businesses and learners.

Within this framework, we want apprenticeships to play an increasingly important role. Apprenticeships have a long tradition in the UK, going back to the mid-12th century. The late 1800s were the golden age of vocational education, with an estimated 400,000 apprentices each year in first decade of the 19th century. Yet with relative industrial decline following the Second World War, and a greater emphasis on academic qualifications, the number of apprenticeships fell markedly.

Recent Governments have attempted to stop the rot, and today there are a wide range of apprenticeships in more than 190 sectors. But this Government still doesn’t think there are enough and even in a climate of cuts has committed additional resources to fund a further 75,000 adult apprenticeships a year by 2014/15 above the level inherited from the previous Government. We want to change the way we value qualifications as a society so that a good quality apprenticeship has as much status and value as an academic degree.

Employers are, obviously, vital to the continued success of apprenticeships. Companies such as Rolls-Royce and BAE systems are already running large and highly-valued schemes, but US computer firm IBM have recently launched a pilot apprenticeship programme, the first time they have done so. Service companies also have an important role to play, the likes of Sainsbury’s, Boots and Superdrug, but apprenticeships work for small firms, too. Independent motor retailer, Cox of Torbay, says its apprenticeship scheme has inspired the rest of the workforce to undertake additional training.

But despite some encouraging examples, the 2009 Skills Commission survey found that only eight per cent of employers in England offered apprenticeships. In Germany 24 per cent and in Australia 30 per cent do so. In England, 30 per cent of employers with more than 500 employees offer apprenticeships, while in Germany more than 90 per cent do so.

The role of employers in apprenticeships is key. We want to encourage employers; we are providing funding, but employers should pay their share. Employers know apprenticeships are good for business and that they recoup their investment rapidly. Research shows that apprenticeships help employers improve productivity and give them a competitive advantage. So it must be fair that they shoulder their fair share of the cash.

We recognise, however, that there is still a free rider problem; that some firms are reluctant to train because they fear losing their trainees to their competitors. That is why there is a role for collective action. For example, when it comes to college and work-based training, we believe that there is a role for voluntary professional standards - after all, most investment in adult skills is already made by employers. There are many good examples ranging from formal licensing schemes in the gas industry, to skills passport schemes in the nuclear and IT industries. We want to build on these and work with industry to identify areas where the application of professional standards can have a real impact. The idea of licences to practise is one we want to encourage, and I have already written to Charlie Mayfield, the new Chair of the UK Commission for Employment and Skills, to ask him to explore the potential of this approach.

I am also very pleased to announce today that the Skills Funding Agency has approved in principle a new National Skills Academy for Rail Engineering; a good example of collective action with employers and providers working together to ensure there is a qualified and highly skilled workforce to support current and new challenges in the rail industry.

I also believe there is a role for statutory and voluntary levies or other collective arrangements, where employers have identified the need for collective action on skills within an industry. John Hayes will set out further details in these areas when he speaks to you tomorrow.

But there are many young people and adults who cannot get onto the first rung of the training ladder because of low levels of literacy and numeracy. Back in 1999, Lord Moser’s report estimated around one in five adults lacked basic reading and writing skills, and even more struggled with numbers. Four years on, in 2003, a basic skills survey in England showed that 16% of adults lacked functional literacy skills, and 21% - that’s 6.8 million people - lacked functional numeracy skills. A follow-up survey is underway which reports next year, but the signs aren’t promising. A 2010 CBI report said 52% of companies are concerned about literacy levels and 49% about numeracy.

We will ensure those who have left school without basic literacy and numeracy skills have access to free training, and we will make that training more effective. Our reformed programme will move away from targets to focus on equipping individuals with the skills and qualifications they need to get a job and progress in work.

Learning and skills development is, however, not just about qualifications. That is why we have protected the budget for informal adult and community learning in the Spending Review. Informal adult and community learning embraces a wide range of provision ranging from arts, culture and health to digital skills, employability skills, family learning, civic engagement and community development.

Adult education is often sneeringly dismissed as basket weaving for middle class ladies. In fact, as you know, recreational courses of that kind are now paid for through fees. What is not always understood is that classes are often a lifeline for adults battling to overcome disadvantage or mental illness or exclusion from the labour force.

During the coming months we will undertake a major piece of work, in close collaboration with partners, to develop a new model of informal adult and community learning which meets real social need. Organisations such as the Workers’ Educational Association have an important role here in delivering both formal and informal adult and community learning.

Summing up, it has been a tough spending round but we have fought hard to defend the critical parts of FE. The sector shown that is can rise to challenges and I expect it to continue to do so. Ultimately, the skills strategy is about creating a skilled workforce fit for work in the 21st century. It is about supporting those most in need and encouraging more people to take up an apprenticeship. It is also about employers doing their fair share. We must work together, we must do more and we must strive for a higher level of achievement - and that includes individuals, colleges, businesses and the Government.

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